TMI Blog2008 (8) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... , Cairn Energy and Ganesh Benzo Plast. The work in respect of ONGC involved drilling two bores in Godavari Delta Region and testing the material obtained on board laboratory. This work lasted for 13 days. The work with Cairn Energy also involved geo-physical and geo-technical investigation in the Gulf of Khambat at eight sites for which the assessee mobilized its own equipment. This work lasted 41 days. The work with Ganesh Benzo Plast was executed on ONGC vessel and involved geo-technical investigation. This work lasted 37 days. Thus, each of the work was of less than 183 days duration and the duration of all the three works was also less than 183 days. Paragraph 1 of article 5 of the DTAA, which defines the term 'PE' to mean a fixed place of business through which the business of the enterprise is wholly or partly carried on. It was pointed out that the requirement of this paragraph is only the fixed place of business through which the business is wholly or partly carried on. There is no other requirement for constituting the PE. Having considered the facts of the case, we are of the view that it is not a case of any installation or structure used for exploration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed. - B. R. Mittal Judicial Member And K. G. Bansal Accountant Member For the Applicant : Rajan Vora and Ms. Preeti Goel For the Respondent : Devendra Shankar ORDER K.G. BANSAL, ACCOUNTANT MEMBER. These cross appeals of the assessee and the revenue were argued in a consolidated manner by the learned counsel for the assessee and the learned DR. Therefore, we think it fit to pass a consolidated order on these appeals. ITA No. 1754 (Delhi)/2007 Appeal of the assessee 2. The only ground taken by the assessee is that the learned CIT (Appeals) erred in holding that the assessee had a Permanent Establishment (PE) in India and consequently in taxing its contractual revenue. 2.1 In this connection, it is mentioned in the assessment order that the assessee is a non-resident company, incorporated under the laws of Netherlands. The return of income was filed on 30-10-2001, declaring total income of Rs. 51,53,280. The return was revised in the course of assessment proceedings, in which total income was declared at Rs. 1,00,62,250. The revision was made on account of the revenue received from Ganesh Benzo Plast Ltd. It was found during scrutiny ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en up at the time of filing of the return of income. The assessee addressed a letter dated 8-12-2003 to the Assessing Officer in this behalf, who passed the assessment order on 24-3-2004. Thus, the claim had been made before the Assessing Officer regarding non-existence of the PE. It was further mentioned that looking to the contracts, it will be clear that the business operations of the assessee were carried out either in India or in territorial waters of India. Under Article 5, the place of business covers any premises, facilities or exploration, whether or not they are used exclusively for that purpose. Such place may or may not be exclusively used by the assessee for the business. Even if a certain space is available at the disposal of the assessee for carrying out its business, such place will be the place of business of the assessee. Coming to the issue whether moving vessels could constitute fixed place of business, it was mentioned that if the vessel is mobilized and brought into the territorial waters of a jurisdiction to carry out business in that jurisdiction, such a vessel would constitute fixed place of business. Therefore, it was held that in respect of all the thre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t undertaken by the German company; (ii) payment in respect of sub-contract had nothing to do with the assembly, erection or installation of the Bucket Wheel Reclaimer; (iii) the German company merely supervised the installation; (iv) the assessee did not recover any money from the German company in respect of any part of erection job; (v) the activity which was carried on by the German company in relation to supply and delivery of the Bucket Wheel Reclaimer cannot lead to an inference of PE in India; (vi) interest is not de hors the contract and it is part of the purchase money and is not a separate source by itself and it forms part of the industrial and commercial profits which are covered by the agreement; and (vii) there is no indebtedness independent of the terms of the contract and interest is not on any debt but it is on account of the terms of the contract itself. The Hon'ble Court referred to paragraphs 1 and 3. It was pointed out that the words subject to provisions of paragraph 3 indicate that while industrial or commercial income of the foreign enterprise is not taxable in India, the rents, royalties, interest, dividends etc., derived by the foreign enterprise fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispute that the income arose from the business and, therefore, article 7 of the relevant DTAA would be applicable. Thus, the income would be taxable only if the assessee had a PE in India. Further, the Tribunal referred to the observations of the Hon'ble Andhra Pradesh High Court in the case of Visakhapatnam Port Trust (supra) and pointed out that the vessel of the assessee was in India only for a period of 2 months, which could not be said to be enduring period of time nor it could be said that there was a virtual projection of the business of the assessee into the soil of India. Therefore, the question was decided in favour of the assessee and against the revenue. 3.4 The learned counsel also relied on the ruling of the Authority for Advance Rulings (AAR) in the Advance Ruling A No. P-11 of 1995. In that case, the applicant was a company, incorporated under the laws of Singapore.In the year ended on 31-3-1995, it entered into two contracts with ABC for providing services related to burial of pipelines offshore India. The job executed by the applicant was in the nature of a turn-key sub-contract because the main contract by the ONGC was awarded to XYZ. The contracts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod of 37 days and the assessee received payment of Rs. 85,83,280. He referred to paragraph 1 of article 5 of the DTAA, which defines the term 'PE' to mean a fixed place of business through which the business of the enterprise is wholly or partly carried on. It was pointed out that the requirement of this paragraph is only the fixed place of business through which the business is wholly or partly carried on. There is no other requirement for constituting the PE. Thereafter, he referred to paragraph 2, which is worded in an inclusive manner and provides that the PE includes, (a) a place of management; (b) a branch; (c) an office, (d) a factory; (e) a workshop; (f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; (g) a warehouse in relation to a person providing storage facilities for others; (h) a premises used as sales outlet; and (i) an installation or structure used for the exploration of natural resources provided that the activities continue for more than 183 days. It was pointed out that clauses (a) to (h) contain the requirement of a place, but clause (i) does not contain such requirement as it speaks about an installation or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also mentioned in paragraph 1. These clauses do not contain requirement for continuation of business for any particular length of time. It is only clause (i) which contains the requirement of continuation of activities for more than 183 days because under this clause there is no fixed place of business but it is an installation or structure used for exploration of natural resources. 3.6 Coming to the cases relied upon by the learned counsel, it was pointed out that the facts of the case of Visakhapatnam Port Trust (supra) were quite different, as the German company was merely supervising the installation and the actual work of erection or assembly was not undertaken by it at its cost. That is why, the court came to the conclusion that it did not constitute the PE although it was opined that the PE postulates the existence of a substantial element of an enduring or permanent nature of a foreign enterprise in another country which can be attributed to a fixed place of business in that country. His case was that enduring or permanent nature should be read in the context of the agreement and if a particular work can be completed in a particular length of time, that particular lengt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned counsel was that if clause (i) of paragraph 2 was applicable, recourse could not be taken to other clauses of this paragraph or paragraph 1. Since the assessee had quoted two cases in the rejoinder, the learned DR was also permitted to state his case. He pointed out that the rules of interpretation of statutes are not applicable while interpreting the treaties. The treaties are to be understood as the handy work of executives, in which legal niceties cannot be read. Paragraph 1 contains the general definition, while paragraph 2 merely furnishes illustrations without prejudice to generality of paragraph 1 and, therefore, if a case is covered under paragraph 1, it cannot be argued that contents of paragraph 2 will override the contents of paragraph 1. He also referred to paragraph 4, which contains a non obstante clause and enumerates the fixed place of business, which will not be deemed to constitute the PE. It was his case that this paragraph may override paragraph 1, but that cannot be said about paragraph 2. 4. We have considered the facts of the case and rival submissions. The facts of the case are that the assessee is a company incorporated under the laws of Nethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, the observations of the court regarding the PE have to be understood in the light of the facts of that case. The case at hand does not involve supply of any material or supervision. It is for testing of materials on Indian soil or Indian territorial waters on-board Indian ship or on the equipment mobilized by the assessee from Singapore. Since the works were carried on in India, it can be very well said that there was a real projection of the foreign enterprise on to the soil of India. Thus, the only question is whether the presence of 13 days, 41 days and 37 days, aggregating to 91 days, at three difference locations could lead to the inference of the PE under paragraph 1 or clauses (a) to (h) of paragraph 2. To our mind, clauses (a) to (h) of paragraph 2 are not applicable at all. In particular, it is mentioned that there was no mine, oil or gas well, quarry or any other place of extraction of natural resources. The tests were conducted to find out whether these sites were suitable for exploration of mineral oil or gas. As we shall see subsequently, the assessee had been conducting investigations in past in India and, thus, it has been carrying on such activities on on-go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered the facts of this case also, we are of the view that they are not in pari materia with the facts of the case at hand for the reason that the works were carried out in the instant case on Indian soil and territorial waters on-board an Indian ship. Further, the assessee has been undertaking these activities on an on-going basis and not as an isolated work. We have also considered the submissions of the learned counsel to the effect that if the case falls under a particular clause, then, it cannot be considered under any other clause or under any other paragraph. The argument of the learned DR in this respect was that paragraph 1 contains the principal rule for deciding whether there is a PE or not. Paragraph 2 enlarges the ambit. Wherever fixed place is available, there is no requirement of time in this paragraph and such requirement exists only in respect of installation and structure. Paragraph 3 is not applicable at all as it is not a case of building site or construction, installation or assembly project, etc., wherein there is a requirement of a particular length of time. Paragraph 4 contains a non obstante clause, which overrides the provisions contained in paragraphs 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operates in the other Contracting State if it does not do so at a distinct place, but this does not mean that the equipment constituting the place of business has to be actually fixed to the soil on which it stands. It is enough that the equipment remains on a particular site. 5.1 Where the nature of the business activities carried on by an enterprise is such that these activities are often moved between neighbouring locations, there may be difficulties in determining whether there is a single place of business (if two places of business are occupied and the other requirements of article 5 are met, the enterprise will, of course, have two permanent establishments). As recognized in paragraphs 18 and 20 below a single place of business will generally be considered to exist where, in light of the nature of the business, a particular location within which the activities are moved may be identified as constituting a coherent whole commercially and geographically with respect to that business. On consideration of various case laws and the commentary above, it is clear that no length of time is prescribed in respect of paragraph 1. To our mind, in such a situation if the place o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borne geographical services on the helicopter hired by the assessee, process data and provide reports. The question was whether the payments made under the agreement constituted fees for technical services. The Tribunal pointed out that Fugro compiled data, processed it and delivered the results to the assessee who would further process the data to determine probable targets. Payments in respect of the services rendered by Fugro could not be said to be fees for technical services for the reasons that (i) there was no transfer of technical knowledge to the assessee, and (ii) there was no transfer of technical plans or designs. He also relied on a number of other cases including Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791 (Mum.), C.E.S.C. Ltd. v. Dy. CIT [2003] 87 ITD 653 (Kol.)(TM) etc. 5.3 In the rejoinder, the learned DR pointed out that the provisions of Indo-US Treaty were applied in the case of Raymond Ltd. (supra), which cannot be done as a sovereign is entitled to enter into different kinds of treaties with different countries in respect of the same matter. It was also pointed out that the question regarding production and transfer of technical design or plan was not conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 5 and section 9 are not attracted. Section 4 is a charging section and section 5 contains the scope of total income, which provides that subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income as described under this section and section 9 provides the incomes deemed to accrue or arise in India in the contingencies described under this section. Therefore, section 5 and section 9 both are aimed at the income for the taxability under section 4 of the Act, while section 44BB does not take into account the income for calculating the aggregate amount to calculate 10 per cent profit and gains. Profit and gains is a type of income to be taxed under a legal fiction i.e., @ 10 per cent of the amount specified in sub-section (2) of section 44BB. Section 44BB is a special provision relating to non-resident assessee who is providing services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in the prospecting for, or extraction or production of mineral oils in or outside India. The section is a complete code in itself. Thus, the reliance placed by Sri Porus Kaka, learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, his case was that all the receipts of the assessee are to be taken into account for working out the presumptive income under section 44BB. 7.2 In reply, the learned counsel pointed out that the issue regarding payments outside India is not covered by the decision of jurisdictional High Court in the case of aforesaid Sedco. It was his case that only charges in respect of mobilization/demobilization within Indian territorial waters could be included. For this purpose, he relied on the order of Chennai Bench of the Tribunal in the case of Asstt. CIT v. Dynavision Ltd. [2004] 88 ITD 213. We find that this case does not deal with the issue at hand, as it deals with computation of book profits under section 115J. Further, he relied on the order of ITAT, Delhi, in the case of R B Falcon Drilling Co. v. Asstt. CIT [2007] 14 SOT 281, in which it was held that only that part of receipt of mobilization charges, which was attributable to activities carried out in India, was to be included in the receipts for the purposes of computing presumptive income under section 44BB. It was also his case that there was no High Court decision in this matter and, therefore, the order of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
